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By Scott Donnelly, Director of Board at CapitalBox


Nobody likes to be told no, from a child the word is usually accompanied by a feeling of disappointment. For businesses being rejected is equally frustrating, especially when it comes to finance. The fear of being told no can often cause individuals and businesses alike to avoid asking for what they really need or want.

We’re especially not good when it comes to asking for money or admitting that we don’t know what kinds of finance are available. It’s an emotional business, which is why so many smaller companies ask family and friends for money, go deeper into overdrafts or use credit cards. Recent research conducted by CapitalBox found that, as a result of COVID-19, almost 1 in 4 (24%) of European SMEs asked family or friends for financial help.

Since the 2008 recession, banks have been wary about lending to small businesses as they have always been viewed as riskier. Now with the uncertainty around the post-covid economic recovery, it can still seem virtually impossible to get a loan to grow a small business.

Here are some top tips to small businesses ahead of applying for a loan and looks at what alternatives can be considered to best avoid the disappointment of a no.

Understand your business and why you are asking

Understanding your business and the reason you need a loan should be the first step. You must take stock of important factors that influence what kind of loans you may be eligible for and your chance of acceptance. For example, knowing what the amount of money to borrow and what it will be used for are the most critical factors when taking out a loan. After all, if you are unsure about how the money will be used, how can you expect lenders to assess the risk?

Assets are a key consideration when finding out whether it is possible to get a secured loan (one backed by assets) or an unsecured loan, which will not require assets but instead uses other criteria such as financial health and turnover. The ability to put up collateral against your loan will in most cases increase your chance of acceptance.

However, some SME loans can offer more flexibility meaning that factors such as the time the company has been in business, revenue and credit scores are weighed in heavily. That can lighten the load of needed collateral or even make you eligible for an unsecured loan.

Who should you ask?

Considering who you ask is as crucial to getting a yes as knowing what you want. It is important to choose a lender who can support you with the right advice and terms throughout the time span of your loan. Being aware of the documents requested by the lender and each lender eligibility criteria can also help to inform your decision.

Perhaps you don’t have the information or time needed to get a loan from a traditional bank or are not eligible for governmental small business funding. Luckily, there are alternative options from classic loans and cash advances to credit lines. To support the specific needs of SMEs, financing needs to come from loan providers who can truly understand their challenges. This includes looking at a flexible approach, quick turnaround times, and the ability to leverage technology and machine learning. This will enable these businesses to make better decisions. Otherwise, companies can waste hours if not days applying for loans with lenders who will never say yes.

Thinking outside the box, there are multiple types of loans that companies can apply for. For those needing a “quick money” solution, merchant cash advances are an option for companies with a poor credit score. Although these advances tend to be the easiest to get, it is worthwhile to pay attention to the terms to find out how much you will be paying for this service. Whilst those looking to bridge the gap between invoice payments can look at invoice financing to keep cashflow healthy.

No is not always the end of the road

Even if businesses take all this into account, in today’s climate, avoiding a no is never guaranteed. When companies do get rejected, it is important to take stock of the potential reasons why. Doing your research and asking third-party experts for help can make the process may provide clarity around lenders decisions. Using the information gathered, businesses can then balance and evaluate the best fit for them, giving those applying for the loan the best shot at a success next time around.

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